Despite ongoing penny-pinching and belt-tightening measures imposed on all employees, the Department of Foreign Affairs has taken the unusual step of calling in accounting firm Deloitte to help it get its financial house in order in the face of "continued budget limitations into next year," Embassy has learned.
Experts say the decision to call in external auditors is likely a preemptive move aimed at helping the department make budget decisions internally, instead of allowing them to be imposed by agencies like the Treasury Board.
On Sept. 18, a memo was sent to all DFAIT employees at headquarters, foreign missions and regional offices. Its authors represent the department's highest managerial echelon: deputy minister of Foreign Affairs Leonard Edwards, deputy minister of International Trade Louis Lévesque and associate deputy minister of Foreign Affairs Gérald Cossette.
The memo speaks of the "financial situation that DFAIT is facing," which has placed "additional burdens" on staff across the department. In the recent past, it says, all employees have been ordered to watch the departmental pocketbook by "ensur[ing] that spending is managed prudently by respecting best practices on all non-essential, discretionary expenditures."
The memo reiterates the standing orders to spend within the allocated budget, not to count on new money for additional pressures and to "anticipate continued budget limitations into next year."
The memo says DFAIT has recently conducted two "reallocation exercises," cutting funding in some areas while increasing it in others, and that "these reallocations will continue into future years."
One of the causes of the current situation, the memo says, is the growing number of staff at headquarters, which "over the past two years has contributed significantly to the present situation."
Paradoxically perhaps, it says that due to the growth of staff in Ottawa, the department's now-longstanding plans to have a greater proportion of its diplomats deployed abroad are being delayed.
Posting a diplomat abroad is said to be three or more times more expensive for DFAIT than employing one in Ottawa.
The deputy ministers warn the cuts will likely be painful.
"There is little flexibility for further internal reallocation of resources without consequence," the memo reads. "This requires us to re-think our business model."
To help do this, DFAIT is paying Deloitte, one of the world's "big four" audit firms, $119,595 to help it get its books in order.
"We have brought in Deloitte, an external audit firm, to conduct a diagnostic audit of the causes of the current situation," the deputy ministers write. "We fully expect this audit will result in a number of early steps to improve processes and accountabilities around the financial management and budget planning and forecasting functions."
DFAIT spokesman Rodney Moore said these budgetary actions are an initiative of the department, as opposed to another central agency like the Privy Council Office or the Treasury Board.
"The reallocation decisions are not being 'imposed,'" he wrote in an email. "Rather they are the result of our own careful ongoing analysis of aligning our financial resources with our priorities."
Mr. Moore denied DFAIT has overspent on its budget in the past few years, saying the department "never exceeded its budgets." He added that the departmental budget has "been considerably increased since fiscal year 2003-2004."
Mr. Moore attributed part of the strain to the fact that the department has "been given the lead of very large initiatives, e.g., the Global Peace and Security Fund." The GPSF, launched in 2005, had a budget of $235 million for fiscal year 2007-2008, and the funds are spent on things like justice system reforms, improving peace enforcement and reducing the impacts of land mines and small arms.
Preemptive action
Gar Pardy, a former diplomat and now the head of the Retired Heads of Mission Association, said it is unusual to bring in external auditors because the department itself, as well as Treasury Board, have auditors of their own.
"To bring in an outsider at this stage, Deloitte, as an external audit team, is an unusual step," he said. "The fact that they are bringing them in to take a look at all of this I think is indicative there are problems here."
Mr. Pardy said the department may have decided to bring in the external auditors as a way of keeping more control over budget reallocation decisions.
"If the Treasury Board thought it was out of hand, they would dump their own auditors into the place overnight," he said. "The fact that the department is doing this could be a preemptive move to try and get a grip on the problems themselves.
Mr. Pardy said the department will take or leave Deloitte's advice as it sees fit, an option not available when dealing with Treasury Board, which he said is "the god on the hill in all this."
Gordon Smith, a former deputy minister of foreign affairs, said he could not recall DFAIT undergoing an external audit before. Mr. Smith is familiar with budget cuts at DFAIT, however, having overseen the cutting of 15 to 20 per cent of the departmental budget during the painful deficit-cutting exercises of the mid-1990s.
DFAIT managers will naturally conduct a "triage" when deciding what to cut, he said, and will go first for the easy targets.
"First of all what you want to do is cut any flab," Mr. Smith said. "But I think that's actually gone quite a long while ago.
"Foreign Affairs has very, very little discretionary expenditure money, and where it does it's been largely cut—things like public diplomacy and cultural diplomacy," he added.
Messrs. Pardy and Smith speculated that the department is likely facing increased fiduciary strain due to the cost of sending staff to Afghanistan and the constantly increasing costs of consular services as more and more Canadians travel abroad. The department may also be trying to save money in advance of two looming and potentially costly issues: Canada's hosting of the G8 and G20 summits next year, and the threat of H1N1.
One source close to the department, who asked to remain anonymous, said he thinks deputy minister Edwards deserves credit for confronting DFAIT's budget woes.
"The bottom line is the department recognizes that they have a problem," he said. "Their managers are living beyond their means, and the practice has been to sort of roll over deficits, assuming there will be surpluses they can play with, but that's fast coming to an end.
"This is a very strong message," he continued. "This is recognition by senior management that they've got a problem on their hands and they want to fix it."
jdavis@embassymag.ca